The Central Bank of Kenya (CBK) official forex reserves shrunk by Sh18.6 billion ($179 million) last week, pointing to possible intervention by the regulator to stave off exchange rate volatility as the shilling touched a two-year low of 104 to the dollar.
The CBK’s latest weekly bulletin shows the reserves stood at $9.568 billion (Sh993.2 billion) equivalent to 6.2 months of import cover on Thursday, compared to $9.747 billion (Sh1.01 trillion/6.01 weeks of cover) a week before.
The shilling was exchanging at an average of 104.03 on Wednesday as dollar demand in the market went up, having depreciated by more than one percent or 1.08 units to the greenback in the space of a week.
The shilling clawed back some ground on Thursday and Friday to close the week at 103.81 units to the dollar.
CBK governor Patrick Njoroge last week linked the recent depreciation of the shilling to excess liquidity in the market, and large external payments made by some unnamed private sector firms.
He, however, added the Central Bank was willing to intervene in the foreign exchange market to ensure stability
Some traders also partially attributed the weakening at the beginning of last week to the arrest and arraignment on corruption charges beleaguered Treasury Cabinet Secretary Henry Rotich and his PS Kamau Thugge.
The CBK does not disclose its participation in the money market either in selling or buying dollars, making it hard to ascertain the level of intervention (if any) whenever the shilling comes under pressure.
The dollar outflow could also have been as a result of payment of foreign loan obligations, which also come from the CBK hard currency kitty, as do payments for the government’s foreign purchases.